Development of Small and Medium Enterprises Law

Promote, support, strengthen, and encourage small and medium enterprises (SMEs) in all productive sectors, especially rural/agri-based.
Spur countryside industrialization.
Establish adequate support structures and promote an enabling environment for SME viability.
Facilitate technology transfer, entrepreneurship training, skills development.
Facilitate SME access to funding, government contracts, incentives, and preferences.
Eliminate burdensome collateral requirements.
Maintain credit system safeguards.
Increase government efficiency in assisting SMEs.
Promote linkages between large and small enterprises.
Encourage private sector and voluntary organization participation.
Establish monitoring feedback and evaluation mechanisms.

SMEs include businesses in industry, agribusiness, or services.
Classification by asset size (excluding land):
- Micro: < P50,000
- Cottage: P50,001–P500,000
- Small: P500,001–P5,000,000
- Medium: P5,000,001–P20,000,000
SMEs up to P5,000,000 assets referred generically as small enterprises.
Definitions subject to review by the SMED Council considering inflation and economic factors.

Must be registered duly; micro enterprises may register with municipal/city treasurer.
Must be 100% Filipino-owned if single proprietorship or partnership; at least 60% Filipino-owned if juridical entity.
Primarily engaged in manufacturing, processing, or production (excluding farm-level crop production).
Cannot be branches or subsidiaries of large enterprises nor have policies controlled by them.
May accept subcontracts or cooperate with large enterprises.
Financing programs target micro, cottage, and small enterprises; medium enterprises access financing via government banks and entitled to other incentives.

Minimal government rules and simplified procedures to encourage entrepreneurship.
Active private sector role in supporting implementation and organizing industry associations.
Coordinated government efforts across multiple departments and agencies.
Decentralized government services for greater efficiency, with delegated authority to regional/provincial offices.

Chaired by Secretary of Trade and Industry.
Members include heads of major departments, chairmen of relevant corporations, and three private sector representatives from Luzon, Visayas, and Mindanao.
Members receive per diem; initial operating budget allocated by DTI.
May invite participation of government agencies and LGU associations as needed.

Establish a conducive environment for SME growth.
Recommend SME-related policies to the President and Congress.
Formulate and integrate SME development plans with national planning.
Coordinate government and private sector SME activities.
Review and suggest policy changes to facilitate SME growth.
Monitor progress and challenges in the SME sector.
Issue implementing guidelines and frameworks for SME support.
Assist government agencies to tap local and foreign funds.
Promote business training, labor-management relations, product development, technological adoption, marketing, and credit access.
Encourage financing innovations such as leasing, venture capital, credit guarantees.
Support tax incentives and research & development.
Report annually on SME status.
Assist in establishing industrial estates outside urban centers.

Duties include preparing SME development plans, coordinating policy monitoring, reporting progress, and assisting Council functions.

SMED Council to recommend integration of all government SME programs under unified institutional framework.
President empowered to establish a small and medium enterprise promotion body under DTI.
This body to receive at least 50% of budget/assets from dissolved agencies promoting SME development.

A corporate body providing various financing modes for small enterprises except crop production.
Functions include loan guarantees, second-level guarantees, venture capital, leasing, rediscounting.
Attached to DTI and under SMED Council supervision.
Headquartered in Metro Manila; provincial branches encouraged.
Governed by a five-member board including private sector and government representatives.

Authorized capital stock of P5 billion.
Initial capital of P1 billion from equity investments by Land Bank, Philippine National Bank, Development Bank (P200 million each), and preferred stock from SSS and GSIS (P200 million each).
Further funding from trust funds, official development assistance, government corporations, and private investments.

All lending institutions must allocate increasing portions of their loan portfolios to small enterprises,
- 5% by end Year 1
- 10% by end Year 2 through Year 5
- 5% by Year 6
- 0% by Year 7 (may decline to zero)
Purchase of government securities (except SBGFC instruments) does not count towards compliance.
Central Bank to monitor and report to SMED Council on compliance.

Central Bank to impose administrative sanctions and penalties on non-compliant lending institutions.
Corporate officers personally liable for at least six months imprisonment and fines not less than P500,000 each.

Laws, orders, rules inconsistent with this Act are repealed or modified accordingly.